Youth Movement at CBS

The firm seeks more and younger viewers with its new CW network.
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It may be many moons before the new CW network truly struts its stuff, but the game plan for the fifth broadcast network looks sound.

Corporate parents

CBS

(CBS) - Get Report

and

Time Warner

(TWX)

, along with

Tribune

(TRB)

and its TV station group, moved last week to take their money-losing minor networks, the WB and UPN, out of their misery. In their place they trotted out the spanking new CW, betting that a bird in the hand is better than two in the bush leagues.

While some lip service will inevitably be paid to demographic appeal and niche viewership, audience aggregation is the name of the game across all media these days. Both networks were failing to put together full lineups of palatable fare, and as a result were incurring big losses. CBS, which has moved boldly in its first month as an independent company to break from the big media pack, sees an opportunity to grab some of the younger viewers who for so long eluded it.

The WB, which was always designed as a magnet for younger audiences, had a brush with splendor with hits such as "Dawson's Creek" and "Gilmore Girls" -- shows that launched a thousand teen-age Hollywood careers and helped turn Katie Holmes into a Scientologist. UPN's schtick has been to corral a diverse (read African-American) and mostly female base with shows like "America's Next Top Model" and "Everybody Hates Chris."

Combined, the two networks were losing an estimated $50 million to $75 million per year, thanks to high programming costs and weak ratings. New management is expected to save the best from each network and create a lineup that can rival the bigger networks' numbers.

While analysts doubt that saving the best shows from each network will lead to huge savings, there are significant backroom efficiencies to be enjoyed. "Overall programming costs could be slightly higher (presuming that the hit shows on both nets cost more than the ones that aren't doing as well), but could be somewhat offset by the fact the net will share some back office costs with CBS," Prudential's Kathy Styponias writes.

Filling two uneven network programming lineups and blending them into one could allow the new network to become lean where two were bloated with expenses. By handpicking the best of both networks and combining them into one schedule, a lot of dead-weight programming can be eliminated while saving the best -- making the new network potentially more competitive with CBS,

Disney's

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ABC,

GE's

(GE) - Get Report

NBC and

News Corp.'s

(NWS) - Get Report

Fox.

"The new network should improve profitability (i.e. reduce losses) by selecting the strongest affiliates, best programming and highest quality managers from each network," said Merrill Lynch's Jessica Reif Cohen in a report last week.

The move could achieve something else that few are talking about at the moment. It is a better vehicle through which CBS can distance itself from other networks in the ratings. CBS and ABC are very much TV's leaders right now, with a slight overall advantage going to CBS. The new CW could act as a spoiler for Fox, which also likes to play the diversity game, and potentially to Spanish-language juggernaut

Univision

(UVN)

. Univision just joined the big boys in the Nielsen Television Index in December and also claims fifth network status.

Leslie Moonves, the CEO of the new CBS, has wasted no time making growth-oriented moves, which he referred to in a presentation to analysts Thursday. He said the CW network will have "a lineup aimed at younger audiences, and a stronger economic model." Under the new network banner, Moonves said a once-money-shedding operation "will make a profit in its very first year. In short, we've turned a loser into a winner."

To its credit, the company, public for under a month, has so far been true to his word. Last week it rolled out a 14% bump in its quarterly dividend, to 16 cents, giving the stock a 2.6% yield that puts it ahead of media peers, according to CFO Fred Reynolds. He says that we haven't seen the last of dividend increases.

As expected, Moonves also said the company will explore the divestiture of Paramount Parks, which he says doesn't fit with the game plan. CBS would like to complete a sale by the second half of the year.